Key Highlights

  • Tax lawyer Adrian Cartland calls the fixed trust provision unsalvageable.
  • One test would require costly written advice for every trust, every year.
  • The all-assets rollover rule could unravel restructures if one asset is missed.
  • Trust tax disputes could run for decades, the lawyer warns.

A day before senators begin public hearings on Labor's trust tax, a tax lawyer has warned that the bill's key definitions could keep courts busy for decades. Adrian Cartland of Cartland Law says one test in the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 is "unsalvageable" and another would require costly advice every year. For family trusts weighing whether to restructure, those warnings go to the heart of how certain the new rules would be.

The bill would impose a 30% minimum tax on discretionary trusts from 1 July 2028. Whether a trust is caught depends on how it is classified, and in particular on whether it counts as a fixed trust.

That makes the definitions the gateway to the whole regime. If a trust is on the wrong side of the line, its income could face the minimum tax.

The bill, along with the Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026, passed the House of Representatives on 29 October. It is still a bill, not law, and is before the Senate.

The fixed trust test Cartland calls 'unsalvageable'

In an interview, Cartland, principal of Cartland Law, said of the fixed trust provision: "The section is unsalvageable."

His critique starts with the government's premise. "The government keeps saying trusts are used for income splitting. They're not," he said, arguing that beneficiaries are simply taxed on their share at their own rates.

Under the bill, one way a trust can be fixed is if beneficiaries have fixed entitlements to all of its income and capital. Cartland says a discretionary trust has no beneficiaries in that sense until the Trustee appoints income, and once it does, the appointee arguably has a fixed entitlement for that year.

"So, is every discretionary trust a fixed trust? I don't know. Neither does Treasury," he said.

He also pointed out that "capital" is not defined in the bill. And he argued that a beneficiary cannot call for the Capital "while the trustee's right of Indemnity is unsatisfied", the trustee's right to be repaid expenses from trust assets.

"Therefore, the first test is satisfied by almost nothing, or by almost everything, depending on how you read it," he said.

A '20-page advice' every year

The bill's second route to fixed trust status asks whether there are no material discretionary elements that could significantly affect beneficiaries' entitlements. It works through a list of indicators.

"Every one of these is a question somebody has to answer in writing, for every trust, every year," Cartland said. "That is a 20-page advice to find out whether you are taxed at 30 per cent."

According to reports, the explanatory memorandum itself concedes there "remains the risk" that different people could reach different outcomes on the same trust.

Cartland also noted that the minister would be able to change, by legislative instrument, what counts as a material discretionary element. That means the line could move after the law passes, without a further vote of parliament.

"So, you pay for the advice, and then the minister can move the line either way," he said, "after you have already structured around it."

Hypothetical example: what an annual review could cost

Hypothetical example: a family has three trusts, each holding a different part of the family's affairs. Suppose each trust needs a fresh legal review every year to confirm whether it falls inside or outside the minimum tax.

If each review cost $5,000, the family would spend $15,000 a year on the question alone. Over five years, that is $75,000, before any restructuring costs or disputes.

The $5,000 figure is purely illustrative. Actual fees vary widely and depend on the trust deed and the adviser. The example shows how annual uncertainty can compound into a significant ongoing cost.

For comparison, the small Business group COSBOA has estimated one-off restructure costs at $15,000 to $50,000 per business.

How restructure relief could backfire

The bill offers rollover relief so trusts can move Assets into another structure without triggering capital gains tax. That relief would start on 1 July 2027 and run for three years.

But to access the relief, a trustee must transfer all trust assets to a single new owner within the three-year window. If one asset is missed, the relief is lost on all assets and the Commissioner can amend assessments, Reports said.

"Everything has to go, including assets you don't know about, like a refund right sitting in a tax dispute," Cartland said.

There are exceptions for assets that cannot be transferred, assets needed to pay debts, and assets worth $1,000 or less. Cartland says there is nothing for an asset that can be moved, "just not properly".

He also listed the beneficiaries who might be left out of a restructure: "The wastrel son. The former spouse. The bankrupt nephew." Any of them, he said, could argue the trustee moved the assets for tax reasons rather than for their benefit.

Why litigation could run for decades

Cartland pointed to NSW land tax as a warning. He said the NSW fixed trust test is more specific, "far closer to a bright line", and expressly carves out the trustee's indemnity.

"There has still been something like a dozen cases on it," he said. "That is one tax, on one kind of asset, in one state."

"Every trust in Australia is going to be transferring assets out for tax purposes. That sets up decades of litigation," he said.

Treasurer Jim Chalmers has said there are "over 800,000" discretionary trusts.

The government's position is that most people will not be affected. In his second reading speech, the Treasurer said "more than 90 per cent of small businesses will not be affected" in any given year.

Supporters, including the ACTU, argue the measure closes an unfair loophole. The ACTU estimates compliance costs at about 0.1% of annual trust income.

What to watch

These are the next steps for the bills:

  • Thursday 5 November and Friday 6 November: Senate Economics Legislation Committee hearings.
  • Friday 13 November: committee report due.
  • Late November: final Senate sitting days of 2026.
  • Any government amendments to the fixed trust definition or the all-assets rollover rule.
  • 1 July 2027: proposed start of three-year rollover relief.
  • 1 July 2028: proposed start of the 30% minimum tax.